Over the last 6 years, so many people, mainly new investors, purchased apartments, large and small. These new investors helped kept the economy going strong by their buying and selling. Brokerages were prospering, lenders were exploding in growth, and long-time owners were making a killing by selling to these new investors at all-time high prices. I personally participated on both sides.
But here’s the problem that’s already coming down the pike – here’s how to make millions in apartment investing if you have the fortitude. Many of the same apartments that these new investors bought are failing and are not performing the way it was planned to. The evidence is astounding. Go onto Loopnet and look for yourself as to how many apartments are “distress sales”. Not only are your lenders foreclosing on thousands of homes per month, but they are also foreclosing on apartments, large and small. It’s an epidemic!
Being successful in real estate requires you to “see a need and fill that need”. That’s how businesses are started, how new technologies are started, and how “new real estate investing” opportunities are created.
Here are 7 danger signs of a failing apartment investment:
Sign #1: Mortgage, tax, and insurance payment are greater than 50% of your collected income.
Sign #2: Unoccupied units are remaining unoccupied for 90 days or more
Sign #3: Appliances and unit parts are being taken from vacant units to be used for normal maintenance
Sign #4: The property’s curb appeal is poor
Signal #5: Typical property bills are not getting paid on time
Sign #6: Tenants leaving (turnover) and not renewing their leases is increasing
Sign #7: Property’s occupancy is lower than the market’s average for more than 90 days
If you see these signs on the next deal you’re looking at, get excited because a great deal can be in the making. In short order, the owner, if he or she does nothing to correct the signs, will be facing mortgage default. And here’s where you can become part of their solution. In one of my previous blogs, I wrote an article a on low-money or no-money down technique using Master Leases Option. This is a great way to approach a property that’s about to fail.
Here’s how it would work in a nutshell:
- You find a distressed apartment building based upon the above signs.
- You purchase it with a master lease (read my previous blog on how this works) and go onto fix up the property over time. In the meantime, the cash flow and equity generated is yours to keep.
- After the property’s problems have been fixed and it is stabilized, you could either sell it outright for a huge cash profit or 1031-exchange all of the profits into a larger property tax-free.
Apartment investments fail for 3 main reasons. They are:
- An ineffective and poor property manager is in charge of the property
- A bad deal was made
- The ownership was on cruise control and didn’t look after their investment properly.
Therefore, your solution to turning around apartments successfully is hiring great and experienced property management, executing and closing on smart deals (doing thorough due diligence), and holding the people who are operating the apartment on a daily basis accountable for what they promise to deliver.
As I mentioned earlier, if you have the desire and fortitude to take on rehabbing and repositioning apartments and you do decide to jump in, you have a new career for life. There will always be failing and non-performing apartments everywhere in the US. Let’s make the jump together and make millions together shall we? Who’s game?
Til next time…